Tuesday, May 21, 2013

Senate investigation says complex tax-avoidance scheme saved Apple $44 billion from 2009-2012

A New York Times report in April of 2012 said that Apple saves billions in taxes annually, by "taking advantage of tax codes written for an industrial age and ill suited to today’s digital economy." That story sat, seemingly unnoticed by Congress, until Monday, when it was reported that Senate investigators have come up with -- basically -- the same conclusion, but with numbers: Using a complex scheme, Apple avoided paying U.S. taxes on $44 billion in offshore, taxable income between 2009 and 2012.

That methodology was detailed in the earlier New York Times investigation.

As reported by the New York Times, Apple isn't the only corporation to use such tactics. It is, in fact, common among multinational corporations with the resources and the foreign offices to pull it off.

Examples of what the NYT reported as Apple's methods include a Reno, Nev., office with just a handful of employees, 200 miles away from its corporate headquarters in Cupertino, Calif. The office collects and invests the company’s profits, allowing Apple to avoid state income taxes on at least some of its gains. California's corporate tax is 8.84 percent while Nevada's is zero.

In addition, the Times reported that Apple has created subsidiaries in low-tax locales such as Ireland, the Netherlands, Luxembourg and the British Virgin Islands. Some of these "subsidiaries" are little more than a letterbox or an anonymous office.

None of these methods are illegal. They do, however, show the differences between John and Jane Q. Public, who cannot hide their incomes, and Apple, who can hide its income.

The bipartisan Senate probe also charges -- for the first time -- that three of Apple’s long-established Irish entities, don’t actually have tax-resident status there -- or anywhere else. The Senate Permanent Subcommittee on Investigations issued a 40-page report on Monday.

One of those subsidiaries, Apple Operations International, has no employees at all. Despite this, it reported $30 billion in income from 2009-2012, but has not filed an income tax return in any country for the past five years, the report said.

Sen. Carl Levin (D-Mich.), the chairman of the subcommittee and a longtime proponent of tightening U.S. corporate tax laws said:
Apple wasn’t satisfied with shifting its profits to a low-tax, offshore tax haven. Apple sought the Holy Grail of tax avoidance.
Three Apple executives, including CEO Tim Cook, CFO Peter Oppenheimer, and its head of tax operations, Phillip Bullock, are scheduled to testify at a Tuesday hearing, regarding the company’s tax practices.

Ahead of that appearance, Apple released a PDF document detailing its expected testimony. In it, Apple made a number of assertions, including claiming that the company was likely the largest income tax payer in the country in 2012, paying "nearly" $6 billion in taxes.
These payments account for $1 in every $40 in corporate income tax the U.S. Treasury collected last year.
It also claimed to be a huge creator of jobs -- in the U.S. -- although most of Apple's employees, or at least those who perform work for the company, may be at Foxconn in China.

Apple added that it does not use "tax gimmicks." The document also contains a brief outline about how the Cupertino, Calif.-based giant believes the U.S. could simplify its corporate tax system, including the elimination of all corporate tax rates and expenditures and the creation of a "reasonable tax on foreign earnings" when companies want to bring that money back to the U.S.
Apple believes such comprehensive reform would stimulate economic growth. Apple supports this plan even though it would likely result in Apple paying more U.S. corporate tax
Although Apple has been highly successful since it rebounded from the brink of bankruptcy (to put it extremely modestly), it's under scrutiny for its huge cash horde of some $145 billion. Most of that money, over $100 billion of it, is held outside the U.S.

If Apple were to bring it back into the U.S., it would face up to a 35 percent corporate tax rate. Rather than tapping that pile of cash, Apple made another tax-saving move recently: It took on debt as part of a $17 billion bond plan that is estimated to save it some $9.2 billion in taxes.

Much of the Times’ earlier report appears to be confirmed by the Senate’s latest findings.

As noted earlier, Apple isn't the only multinational to use such tax-avoidance strategies. Last September the subcommittee spoke with Microsoft and Hewlett-Packard, castigating them for their own heir own, unique methods to allegedly lower their corporate tax bills.

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